For all its talk of innovation and 5G leadership, India's telecom industry is in poor shape.
Prices have tumbled following the aggressive entry into the mobile market of Reliance Jio in late 2016. In the meantime, the industry's debts have soared to as much as 4.5 trillion Indian rupees ($68.8bn). (See India Aims for Leadership Position in 5G.)
Idea Cellular Ltd. , the country's third-biggest operator, has now issued a stark warning about the problems that could be in store for India and its mobile industry unless something changes.
"The elephant in the room is that no industry can survive with mobile voice tariffs halving within a year and data tariffs falling so sharply," said Himanshu Kapania, Idea's CEO, during a recent event organized by India's Department of Telecommunications. "This is causing financial and mental stress in the sector which has already seen a 2% de-growth last year. This means that the revenue to the government would suffer, too."
Even before RJio's arrival on the mobile scene, India's telcos were struggling to boost profitability. But RJio's marketing of free voice and data services has piled further misery on to more established players. A round of consolidation is underway, with a merger between Idea and Vodafone India , the country's number-two player, currently in the works.
Recent regulatory moves have certainly not helped, from the perspective of those players. The scrapping of mobile termination rates, for example, will cut off a source of revenue for the biggest companies and could pose a threat to some network technologies, they claim.
"The challenge today is that the government of India has to decide whether it only wants forward-looking technologies or will allow the co-existence of 2G," said Kapania. "The TRAI [Telecom Regulatory Authority of India] has pushed us to a level where only one technology survives and wants all the other technologies such as 2G and 3G to close down. Uncertainty is the only certainty."
Idea, which generates a tenth of its revenues from termination rates, says regulatory action will have an impact on rural coverage and connectivity. It is also under pressure from the recent introduction of a Goods and Services Tax (GST). (See India's Incumbents Lose IUC Battle, for Now.)
"Our estimate indicates Idea's operating cashflow generation post interest cost would be severely restricted and its net debt is already at elevated levels which perhaps may delay its capex," said ICICI Bank in a recent report. "We await Idea's merger with Vodafone, and the resultant synergy, which should aid the merged entity in this challenging time."
The problem for Idea and its ilk is that -- with RJio still on the offensive -- they are being forced to invest considerable sums in networks to improve service quality and retain customers. Because it is starting more or less from scratch, RJio does not have the same "legacy" conundrum.
"The arrival of new technologies is welcome but the government needs to ensure a level playing field for all players to create a robust industry," says Kapania.
RJio's recent launch of the JioPhone, a 4G feature phone that costs next to nothing for subscribers, is just one example of the competitive pressure Idea and others are facing.
Telcos are not rushing to launch their own 4G devices at heavily subsidized rates. "We are working towards bringing down the cost of a basic 4G device from the current levels of $80 to $25 to $30 in the next three years," says Kapania.
— Gagandeep Kaur, contributing editor, special Light Reading